Shipowners have invested billions of dollars to equip their ships with sulphur reduction equipment to meet stricter air pollution standards, but their investment may not pay for itself as oil prices remain low and cleaner fuels become more affordable.
Systems called scrubbers allow ships to continue burning heavy fuel oil, called bunker fuel, which has long been used as an energy source for seagoing ships around the world. This fuel is cheaper than the low sulphur blends that came onto the market earlier this year when ships were ordered to reduce their sulphur emissions by more than 80%.
This Agreement forms part of the broader plan of the International Maritime Organisation, the world’s maritime regulatory body, to halve the total pollution from ships over the next 30 years.
This requirement has been a difficult financial decision for shipowners, so many scrubbers worth between $2 and $4 million each have bought instead of paying for expensive, low-sulphur conventional fuel.
But there’s a catch. Scrubbers are financially attractive when the price difference between heavy fuel oil and clean fuel is more than $100 per ton. As oil prices have reached historically low levels due to the drop in demand caused by the Covida 19 pandemic and the global oversupply of crude oil, the difference is now hovering around $60 per tonne.
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As a result, the market for gas scrubbers has effectively been frozen and operators with equipment on their ships have faced longer payback periods for the equipment.
We were faced with a sharp drop in demand for retrophytes, 20% of the previous demand. Nothing moves, says Tamara de Gruijter, head of maritime systems at a Finnish shipping company.
Wartsila Corp.
But even with low fuel dispersion, the price dynamics still encourage the installation of scrubbers on new ships.
Wartsila said this week that the company reported a 10 percent drop in sales this year after reporting a 30 percent year-over-year decline in its marine systems sales to $197 million in the third quarter. Sales of services increased by 6%, but equipment sales decreased by 41% due to lower deliveries of sanders.
The marine edition of Lloyd’s List estimates that shipowners have spent about 6 billion dollars on the installation of scrubbers. According to the International Energy Agency, by 2025 these systems will be used by about 5,000 vessels, representing about 30% of the world fleet in tonnage.
Units typically last about seven years, after which operators switch to low-sulphur fuels.
When scrubber technology was introduced a few years ago, many owners saw it as a way of avoiding rising fuel costs, which typically account for up to half of a ship’s operating costs.
At the end of 2019, the gap between the traditional bunker and clean fuel was 300 dollars a ton. Orders for scrapers are placed with manufacturers such as Wartsila in Sweden.
laval esparto
AB and the Norwegian company Yara Marine Technologies.
We are deploying them on 30 of our 64 ships, according to Lars Barstad, Acting Executive Director for Norway.
Frontline Ltd.
one of the largest tanker operators in the world. We haven’t set them up in recent months because they don’t pay, but the price of oil will rise one day and that could change.
Last year, the shipping companies tried to obtain low-sulphur fuel because the refineries had difficulty pumping enough clean fuel mixtures, which made the shipowners concerned that there was not enough equipment available to move the ships.
Demand for middle distillates, such as aviation fuel, fell as a result of the coronavirus pandemic, but demand fell sharply at the beginning of the year and low-sulphur marine fuel soon became abundant. Its value has also fallen.
According to the Bimco Industrial and Commercial Organisation, low-sulphur fuel oil accounted for 71% of total marine fuel sales in Singapore in the first half of the year, compared to 18% for heavy fuel oil and 11% for other fuels.
Bimco estimates that between 20 % and 26 % of the world fleet, in terms of tonnage, uses scrubbing machines, which are highly valued by oil tankers, cargo ships, container ships and cruise ships on long voyages.
But the initial hope that the investment in scrubbers could pay for itself in 12 months has disappeared.
Installing scrubber driers on a new ship costs an average of around $2 million, while retrofitting older ships is more expensive. Schrobbers expected most of their sales to come from orders for new ships, but due to the pandemic, sales of new ships are at the lowest level in five years.
Last year we landed them on six large ships and so far we have recovered about 65% of the costs, according to the Greek owner of more than 20 ships. The price of oil will have to rise by more than 10% for scrubbers to make sense. It could happen, but in hindsight we probably made a bad guess.
Write to Costas Paris at [email protected].
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